McLaren Automotive Ltd 's £370 million and $250 million senior secured notes due 2022 refinanced £238 million of bank debt and the company paid £200 million to buy out shares held by Ron Dennis

MAL is the car manufacturing business and accounted for 73% of the £898
million combined revenues in 2016, with MTG encompassing the racing (about
22%) and applied technologies business activities (about 5%). As part of the
financing, a new parent holding company--McLaren Group Ltd.--has been
established, which will bring all McLaren's business activities under a single
ownership structure.
MAL has undertaken a multiyear program, since 2015, of significant product
development and investment to release 15 all-new cars or derivatives, and
gradually increase its annual production to 4,500 cars per year by 2022. We
believe that the strong McLaren brand name, its established technological
expertise and innovation, and its modular production platform will help
execute this strategy, supported by strong customer demand. MAL has a good
track record of new model development, which is already bearing fruit: car
volumes doubled in 2016 compared with 2015. Volume growth--albeit not at the
same pace--will need to continue to strengthen profitability and generate
positive free cash flows to finance future spending on new models.
Car sales volumes of 1,186 were 8% lower year on year during the six months to
June 30, 2017, due to lower supply levels, although about 3,600 are expected
by the company in 2017 and more than 4,000 in 2018.
We view MTG's position as a racing car constructor in F1--which has
historically been strong--as supportive of McLaren's technological
development, visibility, and branding. However, in recent years MTG's F1
racing performance on the track has been weak, hampered by underperforming
engines currently supplied exclusively by Honda. In the current championship
season, after 15 races McLaren is second to last in the constructor standings
with only 23 points. Its key strategy is to improve this, but it will remain a
challenge until it can regain its competitiveness on the track, against other
leading constructors, notably Mercedes and Ferrari, who manufacture their own
engines and have substantially larger resources. We note that McLaren will no
longer use engines supplied by Honda after the current season. McLaren has
entered into a new engine supply partnership with Renault for the 2018-2020
seasons.
F1 revenues come from prize money, sponsorship, and merchandise. Levels vary
over time depending on the success of the F1 team, but are also largely
contractual. Should on-track performance not improve, revenues will further
decline, potentially compromising the brand and affecting the pricing power
and demand for McLaren's high-performance cars. The racing business also has
high costs and weak profitability, reporting losses in some years. MTG has a
small applied technologies business, which transfers automotive-related
innovation into wider markets such as transportation and health care.
McLaren's financial risk profile is constrained by its highly leveraged
capital structure. The £370 million and $250 million senior secured notes due
2022 refinanced £238 million of bank debt and the company paid £200 million to
buy out shares held by Ron Dennis. The remaining amount covered transaction
costs and added cash to the balance sheet. The shares acquisition was
completed in July 2017. A further £75 million will be paid as a deferred
consideration to Ron Dennis, with £37.5 million each in December 2017 and
August 2019. The £90 million RCF was undrawn.